Inability to Evidence Prior Claims
Has a prior owner claimed embedded items before you acquired them?
But, also…Can you evidence proof of expenditure and ownership?
It’s important to have documentation and robust processes to support and evidence your capital allowance claims. If you’re unable to provide the necessary evidence to confirm capital allowances have not (or could not) been claimed by previous owners, it would be advisable to hold off on claiming CAs. Without adequate records, your claims could be challenged by HMRC, leading to potential penalties and additional scrutiny.
Restricted by Legislation
Are you entitled to claim capital allowances and do your costs qualify?
Some assets can be subject to specific legislation. This restricts or excludes them from qualifying for capital allowances due to activity. For example, buildings used for residential purposes or assets with private use elements might be limited in terms of the capital allowances that can be claimed.
Or, although expenditure-acquired items are required for a trade to operate, they may not qualify for capital allowances due to the rules that govern what does and does not qualify.
Before making a claim, reviewing the relevant legislation must ensure that the assets in question meet the qualifying criteria.
Tax Profile Considerations
Are capital allowances beneficial to my tax profile?
Too often, the CARS team sees claims that have been prepared before there has been a consideration on how a claim can be best applied to the entity making the claim tax profile. It might not be beneficial to claim capital allowances if your tax profile doesn’t allow you to fully benefit from the deductions.
For instance, if your business is in a tax loss position or if you’re already benefiting from other tax reliefs, the impact of capital allowances might be limited. In such cases, it might be more advantageous to defer the claims to a future period when they can provide a more substantial tax benefit. However, if you are thinking about deferring a claim it is also important to consider that a benefit such as claiming Annual Investment Allowance (AIA) is not lost, as that benefit only applies to expenditure in the accounting period in which it is made.
What Can You Not Claim Capital Allowances On?
Qualifying items are not in fact defined by law
This is difficult to answer as qualifying items are not defined in law. Rather, a precise understanding of the function of the items carried out in the trade is required. This as well as a sound understanding and robust interpretation of the legislation applicable to any given situation.
Some clear categories are not eligible for capital allowances. Such as assets used for non-business purposes, tax-exempt activities, and residential buildings. Being aware of these restrictions helps ensure that your capital allowance claims adhere to the defined criteria for eligible assets and activities.
When Can You Disclaim Capital Allowances?
Disclaiming CAs can be done when you choose not to claim them for certain assets that do qualify. This might be done to offset other tax benefits or to optimise the timing of your tax deductions based on your business’s financial situation.
Balancing Immediate Benefit with Long-Term Strategy
Deciding on whether to make a claim
It’s important to strike a balance between seeking immediate tax relief and considering the long-term financial implications. There are numerous considerations that should be factored in.
The Value of Expert Guidance
Navigating the complexities of capital allowances and tax regulations can be challenging. However, engaging the services of capital allowance experts with tax expertise can provide valuable insights. We give support and guidance to our clients on when to make a capital allowance claim. Or even, when to hold off.
Our experts help ensure that your claims are legitimate, and well-documented. Plus, those claims are in alignment with your overall tax strategy, maximising the benefits for your business while avoiding potential pitfalls.
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